Are Electronically Signed Documents Enforceable?
It is becoming common for documents to be signed electronically. The recent South Australian Supreme Court case of Bendigo and Adelaide Bank Limited v Pickard [2019] SASC 123 highlights the risks inherent in using electronic signatures.
The facts
Bendigo and Adelaide Bank Ltd brought an action against the directors of Kenrop Pty Ltd, claiming that they personally guaranteed a loan. Kenrop Pty Ltd entered into a loan agreement as trustee for the K & A Pickard Family Trust. After Kenrop Pty Ltd stopped making repayments, Bendigo and Adelaide Bank Ltd demanded repayment of the loan. Bendigo and Adelaide Bank Ltd then pursued the directors of Kenrop Pty Ltd under personal guarantees.
At the time, Kenrop Pty Ltd was in liquidation. In the loan documentation, Great Southern Finance Pty Ltd purported to sign the personal guarantees on behalf of Kenrop Pty Ltd under a power of attorney by affixing the electronic signatures of its officers. However, evidence showed that the company’s practice for document signing was that the administrative staff of Great Southern Finance Pty Ltd, not the directors of the company, physically affixed the signatures.
This raised a question as to whether the directors authorised the affixation of the signatures and whether the deed was validly executed in accordance with section 127(1) of the Corporations Act 2001 (Cth) by the affixation of the electronic signature of two officers of the company. Section 127(1) of the Corporations Act 2001 (Cth) states “a company may execute a document without using a common seal if the document is signed by two directors of the company or a director and a company secretary of the company”.
The decision
The Court found that the directors of Great Southern Finance Pty Ltd could not prove that they authorised that their electronic signature to be put on the deed and therefore the guarantee is not enforceable against the defendants.
Further, the court found that the plaintiff could not prove the deed had been validly executed in accordance with section 127 as the purpose of this section is to enable a natural person (i.e. the director) to act for the company by signing on its behalf.
The court also found issues regarding the practice that each party executes separate but identical copies of an agreement and provides a single counterpart. Under section 127(1) the court took the view that having the deed executed by two officers signing it means that there must be a single, static document signed by both officers. The court held that having two electronic signatures sequentially applied to an electronic document does not amount to the proper execution of the deed by a company for the purposes of section 127(1).
What can we take from this when using electronically signed documents?
The consequences of electronically affixing a signature to a document may be that it is deemed unenforceable. It is important that parties, particularly corporate entities, sign documents in accordance with section 127 of the Corporations Act 2001 (Cth). Having an electronic signature affixed to a document may raise questions as to whether the directors or officers of a company have authorised the signing of a document.
It is important to also ensure that there is only one single static counterpart executed by each party to a transaction. Parties can not sequentially affix a signature to a counterpart.